ING Bank (Australia) Limited v Wilson

[2013] SASC 6

SUPREME COURT OF SOUTH AUSTRALIA

(Civil)

ING BANK (AUSTRALIA) LIMITED  v  WILSON & ANOR

[2013] SASC 6

Reasons of Judge Burley a Master of the Supreme Court

31 January 2013

MORTGAGES

Application for possession of mortgaged land - whether defendants in default in respect of the mortgage - discharge of mortgage by performance - tender by first defendant of promissory note where the first defendant is the promisor - whether the tender and retention of the note operated to discharge the defendants from their obligations under the mortgage.

Real Property Act 1886 Part 17, s 132, s 133; Bills of Exchange Act 1909 (Cth), s 32 and Part IV, referred to.
Tilley v Official Receiver in Bankruptcy (1960) 103 CLR 529, applied.

ING BANK (AUSTRALIA) LIMITED  v  WILSON & ANOR
[2013] SASC 6

Judge Burley:

1. This is an application for possession of real property instituted pursuant to the provisions of Part 17 of the Real Property Act 1886.  The relevant property is the land contained in Certificate of Title Register Book Volume 5429 Folio 357.  It is not in dispute that the defendants gave a mortgage over that land to the plaintiff to secure the repayment of a home loan made by the plaintiff to the defendants.  The plaintiff asserts that the defendants defaulted in respect of the mortgage, that a notice was given requiring the defendants to remedy the default and that the defendants failed to remedy the alleged default within the time required by the notice.  The plaintiff wishes to obtain possession of the land in order to sell the property pursuant to the powers conferred upon it by the mortgage and the provisions of the Real Property Act. 

2. At the hearing of the application on 15 January 2013 Ms McGarrigan appeared for the plaintiff and the first defendant appeared in person.  The second defendant did not appear, although she had been duly served with the proceedings.  Ms McGarrigan, has filed an affidavit to the effect that, on the day prior to the hearing, the second defendant informed her that she was aware of the hearing but that she did not wish to be heard on the application.

3. All of the affidavits filed in the proceedings have been admitted on the application.  There were no material disputes of fact.  Consequently, this application may be dealt with summarily.  The affidavits supporting the plaintiff’s application disclose that a mortgage was entered into by the defendants with the plaintiff in order to secure a loan of monies made by the plaintiff to the defendants.  The plaintiff alleges that the defendants defaulted in respect of payments of instalments due under the mortgage and that notice was given to the defendants requiring them to remedy such default.  The first defendant contends that no default arose because, prior to the issue and service of default notices, the first defendant tendered to the plaintiff a “promissory note” which, he argued, by its tender (and retention by the plaintiff), had the effect of discharging the defendants’ liabilities under the mortgage.

4. Putting to one side for the moment the first defendant’s contentions, I am satisfied that, had there been a default by the defendants as alleged in the relevant notice, the plaintiff served on the defendants an effective notice requiring them to remedy such alleged defaults and that they have failed to do so.  It follows that, if the obligations of the defendants under the mortgage were not discharged by the tender and retention of the promissory note, the plaintiff would be entitled to an order for possession. 

5. The only point that arises for determination is whether or not the tender of the promissory note and its retention by the plaintiff constitutes a discharge of the defendants’ obligations under the mortgage to repay the amount of the loan. If it does, then the subsequent notice of default given by the plaintiff is of no effect, because the defendants had already discharged their obligations under the mortgage. If there was not a discharge of the defendants’ obligations prior to the issue and service of the notice of default, the plaintiff is entitled to an order for possession because the default in payment of the instalments under the mortgage was not remedied within the required time. Specifically, the plaintiff has complied with the provisions of s 55A of the Law of Property Act 1936 and is entitled, pursuant to the terms of the mortgage and the provisions of ss 132 and 133 of the Real Property Act, to exercise a power of sale in respect of the property. 

6. Mr Wilson relied upon his affidavit sworn on 4 December 2012 (FDN7) and the documentation exhibited thereto.  That documentation mainly consists of detailed correspondence from the first defendant to the plaintiff, part of which is not readily comprehensible.  However, the combination of the content of the correspondence and the submissions put by Mr Wilson make it clear that the basis of the defence contended for is the tender by Mr Wilson and the retention by the plaintiff of the document referred to during the course of submissions as the promissory note.  A copy of that note forms part of Exhibit 1 to Mr Wilson’s affidavit. 

7. Before turning to its content, I should mention that the letterhead used by Mr Wilson in his correspondence with the plaintiff is headed “MATTHEW CRAIG KENNEDY WILSON, Estate.  Executor Office.  9 Fawnbrake Crescent, West Beach, Adelaide, South Australia [5024]”.  I asked Mr Wilson during the course of argument why he used that form of letterhead.  In particular, I wanted to know whether or not he regarded the use of the word “Estate” after his name as constituting an entity separate from himself.  I was not able to understand the response that he gave to me to such questioning but, in any event, I make it clear that in dealing with the evidence of the correspondence between the first defendant and the plaintiff and the content of the document referred to as a promissory note, there is no warrant for any contention that the person named in the correspondence and the promisor named in the promissory note was other than the first defendant.

8. The relevant content of the promissory note is as follows:  reference is made to the sum of “$285,000AU”.  There then follows the name “MATTHEW CRAIG KENNEDY WILSON, ESTATE.  EXECUTOR OFFICE, 9 FAWNBRAKE CRESCENT, WEST BEACH, ADELAIDE, SOUTH AUSTRALIA”.  On the next line the words “PROMISE TO PAY THE BEARER ON DEMAND” occur and this is followed by “TWO HUNDRED AND EIGHTY FIVE THOUSAND AUSTRALIAN DOLLARS”.  To the left of the document there is a circular diagram which contains, among other things, the words “Promissory Note”.  There is provision for endorsement “BY BENEFICIARY”.  Strangely, the document is dated 23 May 2040.  Perhaps the correct date was stated in the document tendered to the plaintiff.

9. Mr Wilson referred to Part IV of the Bills of Exchange Act 1909 (Cth). I accept that the document referred to in the evidence as a promissory note is capable of coming within the provisions of Part IV. Even if it is assumed that it does, I cannot see how the tender of such a note to the plaintiff and its retention by the plaintiff operates to discharge the defendants from their obligations under the mortgage. The nature of the defence contended for by the first defendant is, at best, an argument based on the principles relating to the discharge of a contract by performance. Stated simply, if contracting parties are obliged to perform certain actions pursuant to the terms of the contract, upon performance of those obligations, the contract is discharged by performance.[1] 

   [1]    See generally Carter, Peden, Tolhurst, Contract Law in Australia, 5^th Ed, [28-12] et seq, especially at [28-15], [28-16].

10. The promise contained in the promissory note is no different from the promise contained in the mortgage to repay the mortgage debt according to the terms of the mortgage.  The reference to the promissory note is a mere tautology when it is relied upon in the context that the promisor in the promissory note is also contractually bound by the terms of the mortgage, jointly with the second defendant, to comply with the terms of the mortgage. 

11. The promissory note might conceivably create an additional obligation to pay an amount equivalent to the mortgage debt; it may even constitute an acknowledgement of indebtedness, but, where the promisor is a party to the mortgage, the tender and retention of the promissory note does not discharge the defendants from their obligations under the mortgage.  To hold otherwise would enable a mortgagor to convert an indebtedness secured by a mortgage to an unsecured indebtedness, without reference to the mortgagee.

12. It is possible that the first defendant has confused the effect of a bill of exchange (the tender of which might discharge the mortgage) with the effect of a promissory note. During the course of his submissions he made reference to s 32 of the Bills of Exchange Act which deals, not with promissory notes, but with bills of exchange.  It was not contended that the document forming part of Exhibit 1 to Mr Wilson’s affidavit was a bill of exchange; nor could it have been.  In any event, even the tender of a bill of exchange does not necessarily discharge the contract.[2]

    [2]    Tilley v Official Receiver in Bankruptcy (1960) 103 CLR 529.

13. Mr Wilson relied upon a “CERTIFICATION OF NON-RESPONSE”, a copy of which is MCKW6.  In some unexplained manner, this incomprehensible document was said to have formed part of the process whereby the promissory note had the effect of discharging the defendants’ obligations under the mortgage.  There is no substance to such a contention.

14. One of the more puzzling aspects of this matter is this:  if the first defendant has available to him funds sufficient to pay the amount of the promissory note, why has he not used those monies to pay out the mortgage as opposed to going through the tortuous process of signing a promissory note and forwarding it to the plaintiff?  In view of the conclusions to which I have come, actual repayment of the whole of the mortgage debt may now be the only way in which he can avoid a mortgagee sale.

15. It follows from the above analysis that the first defendant has failed to establish the defence contended for.  Specifically, the tender of the promissory note and its retention by the plaintiff does not have the effect of discharging the defendants from their obligations under the mortgage.  That being the case, the defendants’ subsequent default in paying instalments under the mortgage constituted a breach of the mortgage because the terms and conditions of the mortgage were still operative at all material times.

16. For these reasons, I am of the view that the plaintiff has established an entitlement to an order for possession and there will be an order accordingly.

17. As to the costs of these proceedings, I heard submissions from both parties as to what costs orders I should make depending upon the result of the application.  The first defendant said that if he was successful in defending the plaintiff’s application, he did not seek costs.  The plaintiff’s solicitor, Ms McGarrigan, sought the costs of the proceedings in the event that I decided in favour of the plaintiff.  I gave the first defendant the opportunity to put in a written submission by email if he opposed the plaintiff’s application for costs.  He subsequently advised my Clerk by email:  “I wave[sic] all cost[s] and dispute none”.

18. In my view, the plaintiff should have its costs against both defendants to the date of service of the second defendant.  Costs after that date should be the plaintiff’s costs against the first defendant.

19. My order on the summons is:

    Order for possession in terms of settled order this day initialled by me.